On the Benefits of Set-Asides

50 Pages Posted: 10 Oct 2016

See all articles by Philippe Jehiel

Philippe Jehiel

University College London - Department of Economics; Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR)

Laurent Lamy

Paris School of Economics (PSE)

Date Written: October 2016

Abstract

Set-asides programs which consist in forbidding access to specific participants are commonly used in procurement auctions. We show that when the set of potential participants is composed of an incumbent (who bids for sure if allowed to) and of entrants who show up endogenously (in such a way that their expected rents are fixed by outside options), then it is always beneficial to exclude the incumbent in the second-price auction. This exclusion principle carries over to other auction formats that favor the incumbent and also to some environments with multiple incumbents. Whether it could be beneficial to exclude some kinds of entrants is also addressed. Various applications are discussed.

Keywords: asymmetric buyers, auctions with endogenous entry, entry deterrence, government procurement, incumbents, set-asides

JEL Classification: D44, H57, L10

Suggested Citation

Jehiel, Philippe and Lamy, Laurent, On the Benefits of Set-Asides (October 2016). CEPR Discussion Paper No. DP11564, Available at SSRN: https://ssrn.com/abstract=2850406

Philippe Jehiel (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 4458 2873 (Phone)
+33 1 4458 2880 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Laurent Lamy

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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